NOTE 5 — INCOME TAXES:

The Company’s provision for income tax expense for fiscal 2018 and fiscal 2017 was as follows:

	2018			2017
	(In thousands)
Current:
Federal	$	3,071		$	(596	)
Foreign, state and other		8			5
Prior year federal and state, with interest		119			154
Deferred:
Federal		272			540
Foreign, state and other		(9	)		69
Provision for income tax expense	$	3,461		$	172

The Company files a consolidated federal return and certain state and local income tax returns.

The difference between the effective rate reflected in the provision for income taxes and the amounts determined by applying the statutory federal rate of 34% to earnings before income taxes for fiscal March 2018 and fiscal 2017 is analyzed below:

	2018			2017
	(In thousands)
Statutory provision	$	(1,044	)	$	(40	)
Foreign subsidiary		(80	)		(71	)
State taxes		91			(51	)
Permanent differences		1			112
Effect of new rate per Tax Act on deferred tax asset		325			—
True up to prior year taxes		(106	)		(63	)
Federal taxes on Section 965		3,121			—
Valuation allowance		160			288
Utilization of NOL on Section 965		997			—
NOL Adjustments		(4	)		(3	)
Provision for income tax expense	$	3,461		$	172

As of March 31, 2018 and March 31, 2017, the significant components of the Company’s deferred tax assets which were classified as non-current, were as follows:

	2018			2017
	(In thousands)
Deferred tax assets:
Accounts receivable reserves	$	86		$	123
Inventory reserves		125			201
Accruals		43			17
Property, plant and equipment and intangible assets		262			438
Net operating loss and credit carry forwards		460			300
Valuation allowance		(448	)		(288	)
Total deferred tax assets	$	528		$	791

The Company has no U.S. federal net operating loss carry forwards (“NOLs”) as of March 31, 2018.

The Company has $7.0 million of state NOLs as of March 31, 2018 as follows (in millions $):

Loss Year (Fiscal)	Included in DTA	Expiration Year (Fiscal)
2014	$2.4 million		2034
2017	$0.5 million		2036
2018	$3.6 million	2037

The tax benefits related to these state net operating loss carry forwards and future deductible temporary differences are recorded to the extent management believes it is more likely than not that such benefits will be realized.

The income of foreign subsidiaries before taxes was $276,000 for the fiscal year ended March 31, 2018 as compared to a loss before taxes of $220,000 for the fiscal year ended March 31, 2017, respectively.

Except for the accrual of the one-time transition tax on the deemed repatriation of the Company’s undistributed earnings of its foreign subsidiaries, as detailed below, no provision was made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. Such earnings have been and will be reinvested but could become subject to additional tax if they were loaned to the Company or a domestic affiliate, or if the Company should sell its stock in the foreign subsidiaries.

The Company analyzed the future reasonability of recognizing its deferred tax assets at March 31, 2018. As a result, the Company concluded that a valuation allowance of approximately $448,000 would be recorded against the assets.

The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. As of March 31, 2018, the Company’s open tax years for examination for U.S. federal tax are 2014-2017, and for U.S. states’ tax are 2011-2017. Based on the outcome of tax examinations or due to the expiration of statutes of limitations, it is reasonably possible that the unrecognized tax benefits related to uncertain tax positions taken in previously filed returns may be different from the liabilities that have been recorded for these unrecognized tax benefits. As a result, the Company may be subject to additional tax expense.

In December 2017, President Trump signed into law H.R.1, commonly known as the Tax Cuts and Jobs Act (“TCJA”), which makes significant changes to the Internal Revenue Code. Subsequent to enactment of the TCJA in December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance regarding accounting for the TCJA’s impact. SAB 118 requires companies to recognize those tax items for which accounting can be completed. For items whose accounting has not been completed, companies must recognize provisional amounts to the extent they are reasonably estimable, with subsequent adjustments over a measurement period as more information is available and calculations are finalized.

Enactment of the TCJA resulted in a one-time transition tax on the deemed repatriation of the Company’s undistributed earnings of its foreign subsidiaries. The Company has estimated that it will have a gross transition tax liability of $4.6 million which will be reduced by $1.5 million due to net operating losses of $4.7 million. Thus the Company has recorded tax expense of $3.1 million in the year ended March 31, 2018 as a provisional estimate of its US federal and state transition tax liability.

The TCJA lowered the Company’s US statutory federal tax rate from 34% to 21% effective January 1, 2018. The Company recorded a tax expense of $0.3 million in the year ended March 31, 2018 as a provisional estimate of the reduction in its US deferred tax assets resulting from the rate change.

While the Company has recognized the provisional tax effect of the transition tax on deemed repatriation and the revaluation of deferred tax assets and liabilities in its financial statements for the year ended March 31, 2018, the ultimate tax impact could differ from these provisional amounts. The Company will continue to analyze the impact of the TCJA, including any additional regulatory guidance issued by the U.S. tax authorities, and expects to complete its accounting in 2018.

Prior to March 2018, the Company had asserted under ASC 740-30 that all of the unremitted earnings of its foreign subsidiaries were indefinitely invested. The Company evaluates this assertion each period based on a number of factors, including the operating plans, budgets, and forecasts for both the Company and its foreign subsidiaries; the long-term and short-term financial requirements in the U.S. and in each foreign jurisdiction; and the tax consequences of any decision to repatriate earnings of foreign subsidiaries to the U.S.

Because of the transition tax on deemed repatriation required by the TCJA, the Company has been subject to tax in 2017 on the entire amount of its previously undistributed earnings from foreign subsidiaries. Beginning in 2018, the TCJA will generally provide a 100% deduction for U.S. federal tax purposes of dividends received by the Company from its foreign subsidiaries. However, the Company is currently evaluating the potential foreign and U.S. state tax liabilities that would result from future repatriations, if any, and how the TCJA will affect the Company's existing accounting position with regard to the indefinite reinvestment of undistributed foreign earnings. The Company expects to complete this evaluation and determine the impact which the legislation may have on its indefinite reinvestment assertion within the measurement period provided by SAB 118.

The TCJA establishes new tax rules designed to tax U.S. companies on global intangible low-taxed income (GILTI) earned by foreign subsidiaries. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the TCJA and the application of ASC 740. Therefore, the Company has not made any adjustments related to potential GILTI tax in its March 31, 2018 financial statements.